An RRIF-Insured Bequest is a financial planning strategy that involves leaving a bequest to your heirs using the proceeds from a Registered Retirement Income Fund (RRIF) through an insurance policy.
An RRIF is a retirement income account used to draw down savings accumulated in a Registered Retirement Savings Plan (RRSP) or a Registered Pension Plan (RPP) during your working years. Once you reach the age of 71, you must convert your RRSP into an RRIF and begin withdrawing a minimum amount each year based on a set percentage of the fund’s value.
Under the RRIF-Insured Bequest strategy, you would purchase a life insurance policy that would pay a tax-free death benefit to your beneficiaries upon your death. The insurance policy would be funded with your annual RRIF withdrawals. Additionally, you can also reduce your estate’s tax liability by using the tax-free death benefit from the life insurance to pay off the tax that may become due on death. The RRIF-Insured Bequest strategy can effectively transfer wealth to your heirs and reduce the tax burden on your estate.
Benefits of an RRIF Insured Bequest
- Security for Beneficiaries: The death benefit from the insurance policy can provide a financial safety net for the RRIF holder’s beneficiaries. This can help them cover unexpected expenses or provide a source of income to support their daily needs.
- Flexibility: The death benefit from the insurance policy can be paid to the beneficiaries as a lump sum or a stream of income. This flexibility allows the beneficiaries to use the death benefit in a way that meets their specific needs and goals.
- Estate Planning: An RRIF-insured bequest can be a valuable tool for estate planning. The death benefit from the insurance policy can be used to pay off any taxes due on death, which can help increase the portion of the RRIF that should be given to beneficiaries.
- No Surprises: Unlike other retirement savings plans, the death benefit from an RRIF-insured bequest is guaranteed. This means the beneficiaries will receive the full death benefit amount, regardless of the RRIF balance or market conditions at the time of the RRIF holder’s death.
Factors to Consider When Choosing an RRIF-Insured Bequest
- Cost: The cost of the insurance component of an RRIF-insured bequest can be a significant factor to consider. The insurance cost will depend on the RRIF holder’s age, health, and the required coverage. It is essential to weigh the cost of the insurance against the potential benefits to determine if an RRIF-insured bequest is right for you.
- Eligibility: Not all RRIF holders are eligible for an RRIF-insured bequest. Some insurance companies have age or health restrictions that may limit the eligibility of certain RRIF holders. It’s essential to check with your financial planner to determine your eligibility for this type of plan.
- Estate Planning Considerations: The death benefit from an RRIF-insured bequest can affect estate planning. It is important to consider how the death benefit will affect the overall estate plan and to work with a financial planner or estate planning professional to ensure the death benefit is used to meet the RRIF holder’s goals.
How to Choose an RRIF-Insured Bequest
- Work with a Financial planner: A financial planner can help you understand the options available and determine if an RRIF-insured bequest is right for you. They can also help you choose the right plan based on your needs and goals.
- Compare Plans: There are many different RRIF-insured bequest plans available, so it is essential to compare the features, costs, and benefits of each plan to determine which is right for you.
In conclusion, an RRIF-insured bequest can provide peace of mind to both RRIF holders and their beneficiaries by offering a death benefit that can be used to pay off any remaining RRIF balance or as a separate amount. While many different RRIF-insured bequest plans are available, working with a financial planner is important and considering all the factors when choosing the right plan. By taking the time to understand the options and to make an informed decision, RRIF holders and their beneficiaries can feel confident that their retirement savings are protected and that they have a secure financial future.
